Percentage tax designation: Reflections from Macedonia Nikica Kusinikova September 2016

Civil Society Organisations in Macedonia 13656 (registered); 4156 (with renewed registration) Total revenues in 2014: 81.523.383 EUR 85% of CSOs with annual income < 1.600 EUR State funding (excl. local government) to CSOs in 2014: 1.534.146 EUR (< 2%) No official data on citizens’ and corporate contribution to CSOs Total official levels of corporate donations and sponsorships in 2013 – 10,5 million EUR 10% of the companies have donated to CSOs

Tax incentives on private giving Personal income tax – tax credit – 20% of annual tax amount up to approx. 400 EUR Profit tax – tax debit – up to 5% from annual turnover for donations and 3% for sponsorships VAT exemption Purpose: public interest activities Beneficiaries: all not-for-profit legal entities Challenges Complicated administrative procedure and burden Legal uncertainty for the users

Effects of the tax incentives on philanthropic giving 0,02% of submitted personal income tax forms claimed tax incentives on donations 0,66% of legal entities used the incentives (468, mostly large companies) Year Total tax revenues from the profit tax (EUR) Total approved tax debit on donations (EUR) Ratio of tax expenses to total tax revenues from the profit tax Ration including sponsorships 2011 71,853,659 2,499,832 0.35% 0.67% 2012 59,430,894 5,355,373 0.89% 1.32% 2013 63,219,512 4,473,670 0.70% 1.34%

Tax designation mechanism – potential option for Macedonia Additional source of more flexible funding Small personal income tax base thus relatively modest level of funding Burdensome administration for the authorities relative to financial benefits to beneficiaries Concerns regarding the effect on the existing tax incentives especially for corporate giving It might not equally benefit all CSOs Opportunity for tax benefits to PBOs

Benefits beyond finances Raise awareness among citizens about CSOs and developing habit to contribute to CSOs Stimulate proactive approach by CSOs to reach out to constituencies Simplified procedure for the taxpayers Opportunity to unlock the potential of the tax incentives on the donations Mechanism for decentralized decision-making in state funding to CSOs

Thank you! nikicak@konekt.org.mk www.konekt.org.mk ph: 389 (0)2 3224 198 cell: +389 (0)70 333482